An analysis of sectoral exchange rate pass-through effects on a small open economy using the Leontief Input-Output technique

The volatility displayed by floating exchange rates has revived interest in the relationship between exchange rates and traded goods prices. This study examines sectoral exchange rate pass-through in the Nigerian economy. Findings revealed that sectoral dependence on imports varies across sectors. We find evidence of incomplete pass-through at varying degrees across sectors. Therefore, when adjustment in relative prices is dampened, the incentive for consumers to switch expenditure from foreign to domestic goods will be greatly reduced. This implies that exchange rate policy may be a blunt instrument when used to restore external balance since relative price adjustments will be limited.